Goldman Sachs Group Inc (NYSE:GS) analysts Damien Courvalin and Jeffrey Currie are neutral on gold in the near term, but take a bearish view for 2014 according to a new research report.

Gold in 2013

In their report dated September 16, the analysts plot a mostly unchanged view from current prevailing prices for the rest of 2013, consistent with their projection of $1,300/toz for 2H13.

A key bearish factor is the vanishing risk premium after the drums of war quieted in Syria.  The analysts point out that gold rallied as the crisis escalated but effectively gave up those gains once it became clear there was going to be no military action.

On the other hand, the looming machinations on the U.S. debt ceiling are going to prop up gold, given past experience with such negotiations.

Gold

Also, given the recent sell-off, the chances of another slide are somewhat dim.

Another factor is Goldman’s view that the ‘taper’ will likely be dovish, given the somewhat disappointing economic data emerging out of the U.S. recently, and that could support gold around the September FOMC meet.

Taken together, the analysts feel these ‘transient’ catalysts could counteract each other and allow gold to remain neutral going into the end of this year.

Gold in 2014

For the forthcoming year, the projection is rather bearish. The analysts see prices going down as low as $1,050/toz by year-end, driven by a culmination of macro-economic factors.

A key risk to gold in 2014 is likely to be a hawkish ‘tapering’ due to an improvement in the U.S. economic fundamentals (“a reacceleration in U.S. growth”). Considering that speculative positions have rebounded significantly in the recent rally, such an event could force a rapid unwinding of these positions leading to a precipitous fall in the gold price.

Also, emerging markets, which are significant consumers of gold, could limit imports of the metal due to worsening deficits and weak currencies. EM central banks are likely to scale down gold reserves in favor of USD reserves given the likelihood of rising U.S. interest rates.

Apart from the impact on central bank demand, retail interest in gold is likely to wane due to record high local gold prices brought on by weak currencies and duties imposed by panicked governments. The chart shows the rise in the Indian gold price due to these factors.

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Another macro-economic factor that could dent gold demand is the current benign inflation environment, not conducive to the yellow metal—traditionally viewed as a store of value and hedge against rising prices.

These factors could collude to pressure gold steadily through all of 2014 to reach a level of $1,050 by year-end.

The outlook for 2015 and beyond is somewhat rosier, as the low prices could trigger a cutback in mine production and inflation might also raise its head, making for a projection of $1,200, as shown in this chart.

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